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South Africa’s water crisis has grave consequences for the country’s economy and is being made worse by poor infrastructure, climate change and regulatory difficulties.
This is according to Coronation economist Marie Antelme and ESG analyst Leila Joseph.
“Water security is arguably one of the most critical risks to South Africa’s social, economic, and political long-term future,” Antelme and Joseph said.
“Water stands as a critical business imperative, indispensable for a myriad of functions including employee-related health and sanitation, as a direct input into business processes, and various aspects within the company’s supply chain.”
The water security challenge looks different for different companies since water availability and quality depend on the region and type of business operation.
Businesses face two main problems: water stress exacerbated by climate change and issues with municipal infrastructure. These challenges affect the availability of usable water needed to run a business.
“Water security is not a simple issue in South Africa. Not only is South Africa a water-scarce country, but the supply chain from source to tap is complex,” Antelme and Joseph explained.
The supply chain involves many integrated systems and is governed by a problematic regulatory framework.
While the Department of Water and Sanitation (DWS) regulates water nationally, local governments manage municipal water, which most companies rely on.
“The legislation that governs the two entities is different, and one department cannot interfere with the workings and obligations of the other,” they said.
“In other words, the Minister of Water and Sanitation cannot easily intervene in the delivery of water services at local government level.”
“Likewise, local governments cannot allocate water resources without going through the processes required by the DWS.”
This system creates inefficiencies and obstacles in water management, which can lead to delays and difficulties in addressing water issues.
“Using a wide lens, South Africa’s biggest long-term water challenge relates to inherent scarcity and the impact of climate change. Annual average rainfall is around 460mm, which is almost half the global average of 860mm.”
“This rainfall is very highly concentrated and unevenly dispersed across South Africa’s landmass, with 21% of the country getting less than 200mm per annum.”
“Rain which falls on 8% of the land contributes 50% to what ultimately becomes river flow and can be abstracted,” Antelme and Joseph explained.
South Africa also doesn’t have any navigable rivers, which are traditionally critical to economic and industrial development since they provide a natural source of necessary water and transport.
“The larger rivers – the Orange, Vaal, and parts of the Limpopo – occur in parts of the country where there is little industry, while South Africa’s commercial and industrial heartland – Gauteng – has no sustaining water source.”
“Seven out of nine provinces rely on water from other provinces for around 60% of their economic activity.”
Gauteng relies entirely on water from other regions, making South Africa’s economic centre highly vulnerable to water scarcity and climate change.
“The processes which are necessary to sustain and maintain these systems are also at risk.”
“Water monitoring and measurement at source has seen three decades of reduced fiscal and human resources, as people are needed to monitor rainfall, river flow and groundwater at source regularly and over long periods of time.”
Most major rivers are already dammed to capacity, and the maintenance and investment in these ageing systems have been poor.
“However, the very weakest part of these complex systems is right at the end of the supply chain,” they said.
Population growth, coupled with water scarcity and climate change, has increased the strain on water resources and infrastructure.
These problems have been made even worse by the poor performance of organisations tasked with maintaining water and sanitation infrastructure.
“The widespread breakdown in governance at the municipal level has exacerbated poor maintenance of water systems leading to polluted systems, poor treatment and massive physical and revenue loss.”
“Water stoppages are increasingly common, and ‘water-shedding’ has become common in most geographies outside of the Western Cape.”
The Water Research Commission estimates that 36.8% of the total municipal water supply in South Africa is lost before it reaches industries and households.
“The physical impacts of climate change are predicted to worsen and will disproportionately affect different regions.”
“Average temperatures in the South African interior are projected to increase at 1.5 to 2 times the rate of increase of global average temperatures.”
“Rainfall is predicted to increase over certain regions of the country and decrease over others, potentially causing droughts and floods, each with detrimental impacts on society.”
Flooding can pollute water supplies by collecting contaminants, while strained water treatment systems may further limit water availability and usability.
Droughts will also reduce water quantity and concentrate pollutants, impacting water quality and availability.
“We believe companies cannot achieve sustainable economic success while neglecting their social and environmental responsibilities,” Coronation said.
“Social responsibility has the potential to increase the quality of a company’s earnings stream and consequently its long-term investment potential.”
“In our view, Environmental, social, and governance (ESG) issues form an intrinsic part of the mosaic for any investment case. Poor ESG performance may not necessarily exclude investing in a company, but it does force us to carefully consider the issues and engage management on these factors.”
Source: CDP, Coronation source:Big threat to South Africa’s economy – Daily Investor
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